Whether you work for a private company, a non-profit organization, or a government agency, these days you probably have access to a retirement savings plan. It may be called a 401(k) plan, a 403(b), or a 457(b). It will certainly offer the traditional version of a retirement savings plan, but it may also offer a Roth optiꦯon.

It is up to your employer whether it offers a Roth option. It is also up to your employer the investments you can choose from. Most of your investment o𒊎ptions will be mutual funds, but they may range from highly conservative bond funds to highly speculative stock funds.

Almost nine out of 10 employers offer Roth 401(k) options, while nearly 60% of 403(b) plans offer Roth options, according to surveys from the Plan Sponsor Council of America for 2022 and 2021, respectively.

If either option is available to you, it very ౠwell may be worth considering for the long-term tax implications. The Roth can be a little more painful in your working years in return for a lot more gain once you retire.

Roth vs. Traditional Accounts

There are numerous and substantial differences betwe🧜en Roth and Traditional accounts. Though both are vehicles for an investor to s෴ave for retirement, each has unique aspects that limit or enhance various benefits.

Tax Deductions

When you invest in a 澳洲幸运5官方开奖结果体彩网:Roth account, you pay with after-tax dollars. When you withdraw money after you retire, you owe zero taxes on thaꦓt money. The investment returns over time are tax-free, and you have already paid the income tax 𒉰on your contribution.

If you invest in a traditional retirement account, you pay with pre-tax dollars. Your taxable income is reduced by the amount you pay. That softens the impact of the loss in your take-home pay. After you retire, you'll owe income 澳洲幸运5官方开奖结果体彩网:taxes on those pre-tax dollars you put in, and on the investment returns the account generated.

Income Phase-Out Limits

Depending on the Roth account, a taxpayer may be excluded from being abl🌟e to contribute if the🌜y make too much money. Traditional accounts generally do not have income limits, though the amount you can contribute to Roth IRA accounts depends on your income.

For 2023, taxpayers filing joint returns may have a modified adjusted gross income of less than $228,000 to contribute to a Roth account. Joint filers with income between $218,000 and $228,000 could contribute a partial amount. For single taxpayers, the range is between $138,000 and $153,000, with no Roth IRA contributions allowed above this range.

For 2024, each of the income ranges has increased. Joint filers now phase out between $230,000 and $240,000 (with no contributions allowed above this), while single filers now phase out between $146,000 and $161,000 (with no contributions allowed above this).

Early Withdrawals

Roth IRAs are specially designed to allow investors to be able to withdraw their funds before retirement. Roth IRA contributions may be withdrawn at any time, though earnings are taxed and assessed a penalty if withdrawn before reaching age 59½. In addition, there are special circumstances that allow an investor to withdraw Roth funds for items such as the first time they purchase a house. Withdrawals before age 59½ for a traditional IRA will incur taxes and penalties on contribution amounts and earnings.

Required Withdrawals

There are a few other differences that won't matter much to you until you retire. Investors in a traditional account must begin taking 澳洲幸运5官方开奖结果体彩网:required minimum distributions (RMDs) by age 73. In the past, you had to stop contributing to a traditional IRA at the same age taking RMDs was required.

As of 2020, because of the Settဣing Every Community Up for Reꦿtirement Enhancement (SECURE) Act of 2019, you can contribute to a traditional IRA at any age so long as you have income. RMDs do not apply to Roth IRA accounts.

You Can Choose Both

If your employer offers both traditional and Roth options, you can split your money between the two if you like. You just can't pay in more than the maximum amount allowable for either or both.

For both the 401(k) and the 403(b), that is $22,500 for 2023 (increasing to $23,000 for 2024), plus another $7,500 if you are aged 50 or older (remaining at $7,500 for 2024). For the 457(b) plan, the limits are the same except that you can pay in up to twice the annual 457(b) limit if you're three years or less from retirement age.

Your employ𓂃er may place other limits on the amount you contribute.

You Can Change Your Mind

You can even change your mind at any time and 澳洲幸运5官方开奖结果体彩网:roll over a traditi🐼onal account to💜 a Roth account, or vice versa. Just remember, if you're converting a traditional account to a Roth account, you'll owe income taxes on the balance in that tax year. In addition, your employer likely has a simple way for you to change your contribution amount on 401(k) accounts.

More Factors to Consider

If your em⭕ployer allows you to contribute to either, the following are some personal factors that might point to favoring the Roth option:

• You have quite a few working years left to save for retirement.
• You are in a low tax bracket today or you're fairly sure that your tax bracket will be higher when you retire.
• You don't want to ever have to pay taxes on the money your investments earn while they are in your account.
• If something happens to you, you want to be sure your heirs keep as much of their inheritance as possible.
• You can manage the strain of paying in a chunk of your taxable income month after month.

Reaso🅘ns to stick to the traditional retirement account might include:

• You're on a very tight budget right now. It's easier to squeeze out enough for a traditional 澳洲幸运5官方开奖结果体彩网:pretax contribution since some of that money comes back to you immediately as a lower tax on your paycheck.
• You expect to be in a lower tax bracket after you retire. Tax rates are impossible to predict, but many people do have lower incomes after retirement and therefore owe less in income taxes.
• You're close to retirement age. Those taxable returns have a few more years, not decades, to add up.

The Bottom Line

The choice between a Roth IRA and a traditional IRA will depend on your individual circumstances such as your current and expected tax rates, your age, and your retirement g🐎oals. Each account has its unique rules and benefits, and it may be important to consult with a financial advisor to determine which type of IRA is best for you.